SolveYourProblem
Article Series: Accounting
Home & Small Business Accounting
Keeping
Track Of Cash:
Special Accounting Controls
The
most liquid asset within any organization is cash. Because cash is easily transferable, it is the asset
most susceptible to improper diversion and use by employees.
Since there are numerous transactions that either directly
or indirectly affect the receipt of cash and its payment, it
is essential that cash be effectively safeguarded through the
development and use of special controls.
Within most organizations there is usually no significant
amounts of cash available. Any cash received is immediately
or within a reasonable amount of time deposited in a bank account.
Any payments made by the organization are done by check. Most
businesses deposit all cash receipts in a checking account
at a convenient commercial bank and make all payments by check
drawn against that bank. The forms used by the depositor in
working with the commercial bank are signature cards, deposit
slips, checks, and bank statements.
When a checking account is first opened by a business concern,
certain employees are given the responsibility of
signing the checks that will be drawn on the business's checking
account. The authority to sign the checks is given by the signature
appearing on the “signature card”. This puts the bank on notice
that the signatories on the signature card are authorized to
sign the check for the concern. Usually the organization will
require that the signature on the check be a two-party signature.
There may be numerous individuals who are authorized to sign
the checks; however, there must at all times be two signatures
on the check in order for it to be valid. The two-party check
acts to reduce the possibility of misappropriation of funds,
and also makes more than one individual aware of where funds
are being spent.
In order for an organization to write checks on an account,
there must be funds within the account to cover the checks
written. In order to accomplish this, a “deposit slit” or “deposit
ticket” must be prepared. The deposit slip, which is usually
prepared in duplicate, has a space for writing the amount of
currency and coin being deposited as well as for listing the
checks being deposited. The deposit slip will have a place
to write in the checking account number on the slip, or if
the deposit slip is preprinted, it will already contain the
account number and the name of the business organization on
the face of the form.
Once the checking account has been set up and there exists
funds in the account, it is possible to make cash payments
by writing checks on the account. A check by definition is
said to take the place of cash. The “check” is a written instrument
that orders the bank it is written on to pay a specific sum
of money to the party designated on the face of the check.
There are three parties to a check; the bank on which the check
is drawn, known as the drawee; the person to whom the check
is being paid to (pay to the order of), the payee; and the
person who signs the check, the drawer or payor.
The check, or more specifically, the check stub or duplicate
copy of the check, becomes the basis for the journal entry
made in the cash payments journal. While the form of the individual
checks issued by different banks may vary, basically the following
information is found on the typical check: the name and address
of the depositor; serial numbering in order to facilitate the
depositor's internal control; a preprinted account number;
and the name of the bank on which the check is written.
The records maintained by the business organization having
the checking account are usually found in the checkbook, which
contains the unwritten checks and the check stubs. The bank
maintains a separate record of the activity within an individual
checking account, and forwards to the checking account customer
a bank statement, usually on a monthly basis. The bank statement
reflects the record that the bank maintains of activities affecting
the customer's checking account for the month. Like any account
that is maintained for a customer or a creditor, certain specific
information is found in the bank statement. This account is
treated by the bank as if the customer is actually a creditor,
because the funds being safeguarded for the checking account
customer, as far as the bank is concerned, represents a liability
to the bank.
The bank
statement contains the opening balance in the customer's
account. Any increases to the account as a result of deposits
are listed on the bank statement and are known as credits.
Any checks the customer has written and the bank has paid during
the month are shown as reductions on the bank statement, and
thus are recorded as debits to the bank statement.
Any charges that the bank has made, such as monthly service
charges, appear on the bank statement and are shown as reductions
from the balance in the account. When the bank has been asked
to pay obligations for the customer, these payments are shown
as debits to the account. Where the bank has acted as a collection
agent for the customer, these collections appear as credits
on the bank statement. The final line on the bank statement
represents the ending balance in the statement. This balance
should agree with the balance on the check stub for the same
date. # # # # # SolveYourProblem.com : 2007
> Home > Business
Accounting Articles:
Main Page
|
